Correlation Between Iron Road and Bluescope Steel

Can any of the company-specific risk be diversified away by investing in both Iron Road and Bluescope Steel at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Iron Road and Bluescope Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Iron Road and Bluescope Steel, you can compare the effects of market volatilities on Iron Road and Bluescope Steel and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Iron Road with a short position of Bluescope Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iron Road and Bluescope Steel.

Diversification Opportunities for Iron Road and Bluescope Steel

-0.59

Correlation Coefficient

Iron Road  Bluescope Steel

Excellent diversification

The 3 months correlation between Iron and Bluescope is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Bluescope Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bluescope Steel and Iron Road is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Iron Road are associated (or correlated) with Bluescope Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bluescope Steel has no effect on the direction of Iron Road i.e., Iron Road and Bluescope Steel go up and down completely randomly.

Pair Corralation between Iron Road and Bluescope Steel

Assuming the 90 days trading horizon Iron Road is expected to under-perform the Bluescope Steel. But the stock apears to be less risky and, when comparing its historical volatility, Iron Road is 1.02 times less risky than Bluescope Steel. The stock trades about -0.12 of its potential returns per unit of risk. The Bluescope Steel is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,877  in Bluescope Steel on December 30, 2024 and sell it today you would earn a total of  354.00  from holding Bluescope Steel or generate 18.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Iron Road  vs.  Bluescope Steel

Iron Road

Risk-Adjusted Performance

Very Weak

Over the last 90 days Iron Road has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Bluescope Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bluescope Steel are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Bluescope Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iron Road and Bluescope Steel

The main advantage of trading using opposite Iron Road and Bluescope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iron Road position performs unexpectedly, Bluescope Steel can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Bluescope Steel will offset losses from the drop in Bluescope Steel's long position.

The idea behind Iron Road and Bluescope Steel pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.